The company has had so many headline-grabbing product recalls that in February investor Warren Buffett chastised it for its mistakes. At the same time, J&J (JNJ, Fortune 500) is managing an important merger in its huge medical-devices business.

Some products have taken longer than expected to return to market, says Deutsche Bank analyst Kristen Stewart, one reason for a 6.7% drop in U.S. consumer sales in 2011. "Getting these issues behind them will be important," she says.

J&J has a lot to fall back on. Although its over-the-counter drug brands are well known, the consumer segment is also the company's smallest, by about $9.5 billion in sales.

U.S. consumer sales have dipped the last few years, from an increase of 8.3% in 2008, to a decline of -1.4% in 2009, a steeper drop of -19.3% in 2010, and a lesser drop of -6.7% in 2011.

A big bet on devices

To amp up growth, J&J is acquiring another medical-device maker.

J&J's largest business is actually medical devices, and there's a lot for investors to keep an eye on there. Medical devices brings in 40% of sales, compared to 23% for the consumer and 37% for the pharma divisions.

First, some trouble: The company's DePuy division has had a big recall of hip implants, leading to a charge against 2011 earnings.

As it deals with this, J&J is also taking a big splash with its planned $21 billion purchase of Switzerland-based Synthes. Mergers can be tough to manage, and this will be no exception, since it will make DePuy 70% larger. The merger, which now has approval from EU regulators, will increase J&J's exposure to the growing trauma sector -- devices such as pins and screws for fractures. Synthes grew sales by 8% in 2011, compared with 5% for J&J's device line.

J&J's patent portfolio is relatively strong, but the stock is priced low enough to deliver a 3.5% dividend yield. (Yields fall as prices rise.) That puts it below the typical drug stock dividend payout of 4.3% but above the average blue-chip yield of 1.9%.

J&J has increased its dividends consistently for 45 years, and Morningstar analyst Damien Conover says the company generates enough cash from its sales to continue making a decent payout to shareholders for a long time to come.

Sources: Johnson & Johnson, Synthes, Deutsche Bank

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